Mao bday celebration VCG/Getty Images

A Socialist Market Economy With Chinese Contradictions

China confounded widespread expectations of a sharp slowdown in economic growth in 2016. But the longer China's credit boom continues, the less likely it will be that policymakers can achieve a smooth transition to a sustainable economic path.

LONDON – The year 2016 ends with slightly higher forecasts for global growth and inflation. In part, that reflects expectations of a big new fiscal stimulus in the United States under President Donald Trump. But equally important is the strength of the Chinese economy, with buoyant industrial production fueling a sharp rise in global commodity prices.

That strength has confounded expectations that China’s seven-year credit boom, during which the debt/GDP ratio rose from 150% to 250%, would inevitably end in 2016. Some Western investors foresaw a banking crisis, owing to enormous bad debts; others expected that President Xi Jinping, having consolidated his political position, would introduce structural economic reforms. But almost all non-Chinese economists anticipated a significant slowdown, which would intensify deflationary pressures worldwide.

In fact, the opposite has happened. Central and local government borrowing in China has soared: bank and shadow-bank credit has grown rapidly: and the People’s Bank of China (PBOC) has increasingly issued direct loans to state-owned banks in a maneuver closely resembling monetary finance of government spending.

To continue reading, please log in or enter your email address.

Registration is quick and easy and requires only your email address. If you already have an account with us, please log in. Or subscribe now for unlimited access.


Log in;